Finance Commission
Finance Commission meets Eminent Economists in Mumbai
The Finance Commission met with eminent economists in Mumbai on 8th May, 2019, during its two-day visit to the city. The economists put forth a diverse array of issues for the consideration of the Commission; the salient issues are the following:
- There is a need to adopt a total view on the borrowing requirements of the consolidated public sector. This should encompass off-budget transactions, borrowings of the public sector undertakings and contingent liabilities of both the Union and State Governments. This is important from many angles, including debt sustainability, fiscal transparency and proper coordination of fiscal and monetary policies.
- It should be carefully examined whether the increased tax devolution by the 14th Finance Commission has led to improvements in the social spending of State Governments.
- There is possibly a mismatch between the demand and supply of state development loans, which can affect the cost of borrowings of state governments in the next five years. Given the maturity profile of state loans, there can also be repayment pressure on these loans during the period of the 15th FC.
- Indications are that the fiscal deficit to GSDP ratio of the States taken as a whole is gradually declining, after the spike seen in 2015-16 and 2016-17.
- However, states are at vastly different stages of debt consolidation. Reaching the FRBM targets would involve an extremely difficult adjustment path for a few states. However, it is important that the Union Government, and State Governments as a whole, consolidate their debt position. According to some economists, expenditure adjustments alone cannot bring about the required adjustment; fresh revenue-raising efforts should also be made. Proceeds from auctioning of mines could be a potential source of revenue.
- The quality of budgeting needs to improve. Governments should not budget for a low fiscal deficit, knowing fully well that it cannot be achieved. Projections of revenues from GST is tricky, but not impossible if one can work with the available data.
- Economists also made suggestions regarding the formula for horizontal devolution of Central taxes among States and the provision of grant-in-aid to the State Governments. These suggestions related to weight of income distance in the devolution formula, the need to consider the quality of forests in addition to its quantity and the need to consider and incentivise human development through a system of grants or tax devolution. A few economists also urged that intra-state inequality is another aspect that begs for the consideration of the Finance Commission.
- Given the shift from the use of 1971 population to 2001 population, some economists pointed towards the need for instituting an incentive structure in devolution. The composition of population in terms of proportion of elderly in population is becoming significantly different across States.
- Some economists urged Finance Commission to consider reinstating the system of specific-purpose grants to ensure development of social sectors and other sectors that require handholding. Finance Commission may also consider the need for achieving comparable service delivery standards across the country as its guiding principle.
- A suggestion was raised for Finance Commission to consider giving priority to the development of a very robust statistical system in the country in its recommendations.
Economists present at the meeting were: Dr. Rupa Rege Nitsure, Shri Saugata Bhattacharya, Ms. Prachi Mishra, Dr. SamiranChakraborty, Ms. Pranjul Bhandari, Ms. Ashu Suyash, Shri Anjan Deb Bose, Shri Naresh Takkar, Shri Soumya Kanti Ghosh, Shri Ajit Ranade, Prof. Ashima Goyal and Dr. S. L. Shetty.